Artificial intelligence still seemed the stuff of science fiction when a real estate developer named Chad Williams bought a plot of land, roughly half the size of a football field, in Overland Park, Kan.
Mr. Williams, who had taken over his family’s business of car lots and office furniture suppliers, used the land in 2003 to build his first data center, a big, boxy warehouse housing powerful computers.
More than two decades later, the company Mr. Williams built, Quality Technology Services, is at the heart of one of Wall Street’s biggest gambits: the race to profit from artificial intelligence.
The private equity giant Blackstone spent $10 billion in 2021 to acquire QTS, and has been pouring billions more into the company to help it expand its data centers. These giant buildings house the backbone of the internet — and more recently artificial intelligence systems — using technology and heating and cooling systems to keep the computers inside the centers humming.
This largely unglamorous industry is critical for A.I. leaders to get right. QTS leases its facilities to companies like Amazon and Meta and supplies the electricity and water needed to power and cool their computers.
Blackstone calls data centers one of its “highest conviction investments.”
Blackstone is already one of the world’s largest owners of office buildings, warehouses and science labs, but it has sunk more money into data centers and related infrastructure than into almost any other sector in the firm’s 40-year history. All told, Blackstone has put more than $100 billion into buying and lending to data centers, as well investing in construction firms, natural gas power plants and the machinery needed to build them.
Blackstone is not alone. Data centers are drawing a crowd on Wall Street — investment giants like KKR, BlackRock and Blue Owl have collectively plowed hundreds of billions into the industry. As investment firms announce larger and larger deals, one Wall Street executive says he jokes about “Braggawatt” deals, as data centers are typically measured by the wattage they use.
The spending frenzy has created concerns about whether too many data centers are being built. A TD Cowen analyst, Michael Elias, warned of potential “oversupply” in the market as some technology companies, including Microsoft and Foxconn, have stepped away from some leases. Still, there has been a flurry of announcements in just the last two weeks: OpenAI plans to build a massive computing complex in the United Arab Emirates, and the investor Chamath Palihapitiya said he had bought real estate in Arizona and planned to ultimately raise $25 billion to build a data center there.
Joe Tsai, chairman of Alibaba, which views A.I. as core to its business, also said he was starting “to see the beginning of some kind of bubble” in data center construction.
Blackstone, on the other hand, says it still sees strong demand from tech companies, which are willing to sign what they describe as airtight leases for 15 to 20 years to rent out data center space.
“It’s not like building condos in Miami,” the company’s president, Jonathan Gray, said in a Bloomberg interview in January, noting that Blackstone starts building only once it has a locked-in tenant.
And even as questions about overbuilding have surfaced, Blackstone has reiterated its commitment to building more centers and investing in the power plants needed to run the computers inside them.
Well-timed real estate bets are what have vaulted Blackstone past its rivals to make it the world’s largest private equity firm.
Mr. Gray was the chief architect of the firm’s race to buy foreclosed homes in the wake of the financial crisis. Blackstone became the largest owner of single-family homes in the United States for many years. It sold those homes for a profit of more than $7 billion.
The timing of Blackstone’s acquisition of QTS also looks fortuitous.
QTS went public in 2013, but its stock price languished, largely because it constantly needed more money for new data centers that would take years to build. Since banks would lend the company only so much, QTS had to raise more money from stock market investors, making existing shares less valuable.
“Public markets don’t like it when you buy land and then we tell you, ‘I’m not going to have a return on this for four years,’” said Tag Greason, co-chief executive of QTS.
In the summer of 2021, when Blackstone purchased QTS, the release of ChatGPT was still about a year away. The QTS acquisition barely warranted a mention during the private equity firm’s quarterly conference calls.
When ChatGPT was released in 2022, it created a buying frenzy in A.I. companies like Nvidia, the largest producer of A.I. computer chips and now one of the most valuable companies in the world. Amid the frenzy, Blackstone plowed billions more into QTS, increasing its number of leased data centers ninefold in just under four years.
QTS tenants include major technology companies like Google and Meta that are opening up their wallets on A.I. investments. Alphabet recently said it would spend $75 billion this year and Meta up to $72 billion, largely on A.I. infrastructure.
The complexity and cost of running A.I.-focused data centers stem from the vast amounts of power they guzzle, which can be about 10 to 20 times as much per server or rack as general cloud computing. There is also the need to keep the centers operational 99.999 percent of the day, or the “five nines” in industry parlance. That equates to about five minutes of downtime all year for maintenance or to switch out servers.
Blackstone has branched out from QTS and has been buying up other operators around the globe, including a giant data center company in Australia with operations around Asia, and has teamed up with Digital Realty, another American data center company, to build four more giant campuses in Frankfurt, Paris and Northern Virginia.
Even with the onslaught of new entrants into the data-center market, Blackstone believes it has unique advantages, including more money to invest and ownership stakes in construction and equipment companies that can help get the projects done.
“When you start getting to these very large-scale projects, there are very few who can put all these pieces together,” said Nadeem Meghji, global co-head of real estate at Blackstone.
But earlier this year, Blackstone’s seemingly invincible bet suddenly looked shaky.
In late January, the Chinese firm DeepSeek said it had figured out a way to build A.I. systems using less power and fewer chips, raising the possibility that there may be less need for these large, expensive data centers.
The revelation appeared to shatter certain investment ideas about A.I., including the infrastructure bet. Still, within days, Blackstone and its tenants, including Meta and Microsoft, reaffirmed on their quarterly conference calls their need for and commitment to this investment.
The stock market seems increasingly convinced of this, also.
On March 28, CoreWeave, a darling of the A.I. boom, went public. CoreWeave rents out computing capacity to tech companies and runs data centers. The company’s initial public offering underwhelmed, with its stock trading far below where its bankers and investors had predicted. But by late May, its stock had more than doubled from the I.P.O. price.
Last month, though, the data center industry was rattled again.
Microsoft said it was pausing the construction of data centers in New Albany, Ohio, where QTS and other operators are building out new centers or have existing ones.
“We really did not have prior notice,” said David Edelblute, a government official in Licking County, which includes a portion of New Albany.
Rudy Sahay, the founder of the investment firm Aquarian Holdings, said he had recently passed on a data center deal because the terms made it too easy for tenants to get out of the leases.
Other investors are starting to question how Blackstone and other Wall Street investors in data centers will ultimately exit them. Few investors are as large as Blackstone and have the money to buy such mammoth companies or even individual data centers valued in the tens of billions of dollars, and group deals can be difficult to execute. A core part of the private equity model is that the firms buy companies and sell them within five to seven years so they can return money to their investors.
Karl Kuchel, head of a group at the Australian bank Macquarie that invests in data centers, said it was “an unanswered question” as to whether there would be buyers for these enormous data centers once the private equity firms looked to sell out.
If taking QTS public again is not a viable option, some investors bet that Blackstone will have to find creative ways for investors to get their money out. Blackstone could sell individual data centers, said Sean Klimczak, its global head of infrastructure. Alternatively, he noted, Blackstone doesn’t necessarily have to sell the data centers because they’re in certain funds that hold investments indefinitely.
One person who has found a profitable exit is Mr. Williams, the QTS founder, who started with one data center in Kansas in 2003.
In March, the company announced that he was stepping down as chief executive. In a statement, Mr. Williams said he planned to return to another one of his companies, Quality Group of Companies as chief executive, and he thanked Blackstone for the opportunity to work and grow together.
As part of his departure agreement, two people briefed on the matter said, Blackstone will pay Mr. Williams $3 billion.
Maureen Farrell writes about Wall Street for The Times, focusing on private equity, hedge funds and billionaires and how they influence the world of investing.
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